Investors bet on pickups and SUVs despite low U.S. sales

The majority of significant automakers on Wednesday reported lower December U.S. sales and forecast weaker total sales in 2018, however investors bid up shares in the sector on a bet that high-margin pickup trucks and SUVs will pull Detroit’s automakers through any slump.

The December numbers were above expert expectations, raising the shares of General Motors, Ford Motor and Fiat Chrysler Automobiles NV. According to Autodata Corp, which tracks market sales, the seasonally adjusted annualized rate (SAAR) of U.S. car and light truck sales in December dropped to 17.9 million units from 18.2 million in December 2016.

Experts surveyed by Reuters had forecasted a SAAR for December of 17.5 million units.

Investors were happy that General Motors had cut its stock of unsold vehicles – an issue for the market earlier in 2017 – at the end of December to 63 days supply unsold vehicles, beating its target of around 70 days supply.

But the automaker stated it anticipates the industry to sell lower than 17 million new vehicles in this year. According to Autodata, 2017 full-year sales struck 17.23 million units, down almost 2 percent from an all-time U.S. record of 17.55 million units in 2016.

Automakers’ difficulties in 2018 consist of dealing with a continuous shift in consumer choice away from passenger cars to more profitable pickup trucks and SUVs, and an increase of millions of nearly-new, off-lease vehicles that are more affordable than new vehicles.

Automakers are still evaluating the potential effects of increasing rates of interest and the sweeping tax overhaul passed by the Republican-controlled U.S. Congress last month.

Charlie Chesbrough, chief economist at Cox Automotive, owner of the Autotrader online car market and Kelley Blue Book car appraisal service, stated the group expects 2018 sales to hit 16.7 million units and increasing rate of interest are one of the industry’s obstacles this year as they increase month-to-month car payments.